U.S. Prosecutors Going After Businesses for State Tax Violations

U.S. Prosecutors Going After Businesses for State Tax Violations

According to a press release by the Department of Justice, a popular Chicago restaurateur was sentenced to a year and a day in federal prison for failing to remit sales tax on nearly $10 million in cash receipts. Hu Xiaojun, also known as Tony Hu, recently found out that the federal government isn’t only enforcing federal tax law, but also state sales and use tax obligations.

Federal prosecutors alleged that for a five year period ending in 2014, Hu instructed employees at several of his Chicago restaurants to keep records of how much of the daily sales were paid in cash. At the end of the day, Hu would review the summary, record an amount of sales on the restaurants books that was significantly less than the actual daily cash sales, and finally would destroy the daily summary.

Hu also instructed restaurant employees to not deposit the skimmed cash into the restaurant’s bank account. Instead, those funds were used to pay for some of the day-to-day expenses of the restaurant like wages and supplies. A portion of the skimmed cash was deposited directly into Hu’s bank account. Hu was charged with a single count of wire fraud and one count of money laundering.

Interestingly, Tony Hu wasn’t charged with any federal tax crimes. When looking at the facts and circumstances of the case, one may believe that Hu could have been charged with filing a false tax return (for underreporting the amount of income that his restaurants truly earned), tax evasion, and employment tax fraud (for paying his employees exclusively in cash and without withholding employment taxes). But instead, the government flexed their muscles under the mail and wire fraud laws and focused solely on the violation of state sales tax laws.

The U.S. Government is Getting Into the Business of Enforcing State Sales Tax Laws

In addition to federal and state income taxes, business owners who are collecting money from customers are required to collect and remit state sales or use tax at the point of purchase and remit such amounts to the state government. Historically, state taxing authorities have investigated and brought civil and/or criminal actions against those who failed to properly collect and remit such taxes. But this case is a further indication that even if a state taxing authority fails to pursue criminal charges for failure to remit sales tax under the laws of the particular state, the federal government can criminally charge the taxpayer under money laundering and federal fraud statutes.

Business owners sometimes need assistance in determining what types of products require the collection and remittance of sales tax. For instance, In California, the sale of certain types of food products and prescription medication are exempt from state sales tax. The intricacies of state sales and use tax law can and does lead to business owners falling out of compliance. The cost of such noncompliance can be enormously more than consulting with a tax professional to ensure that all state tax laws are being followed.

Business owners who are concerned that they might not be correctly collecting and remitting sales or use tax properly or taxpayers who are being investigated for sales and use tax noncompliance should consult with an experienced tax attorney as soon as possible. A tax lawyer who is also a CPA understands not only the tax law, but the finances of your business. Having a tax and accounting team behind you can reduce or eliminate the potentially destructive effects of a sales tax audit. Going into an examination or criminal investigation without legal representation can lead to incriminating statements being made and documents produced that the government can use against you. Now that the federal government has demonstrated that they will not hesitate to file federal criminal charges for sales tax violations, there is no better reason to contact the Tax Law Offices of David W. Klasing to ensure that you and your business are and remain protected.

Contact an Experienced Tax Attorney Today

The tax and accounting professionals at the Tax Law Offices of David W. Klasing have extensive experience representing taxpayers from all walks of life in a myriad of different tax situations. From businesses facing a California sales tax examination to individuals looking to come into compliance with regard to their undeclared foreign bank accounts, the team at the Tax Law Offices of David W. Klasing are ready to zealously advocate on your behalf. Don’t let your taxes allow you to lose sleep. Contact the Tax Law Offices of David W. Klasing today for a reduced-rate consultation.

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